Retroactive Pay Law and Legal Definition

Retroactive pay is a delayed wage payment for work already performed at a lower wage rate. It is distinguished from back pay. Some state constitutions and other laws prohibit retroactive pay, even when an administrative mistake is made.

Retroactive pay is usually in the form of a pay hike attributed partly to past service. The amount of retroactive pay which is paid to the employee is based upon the difference between what the employee was paid up to the point when the retroactive pay increase went into effect and what the employee should have been paid had the retroactive pay increase been in effect since the beginning of the contract.